VALUE CHAIN ANALYSIS AND Dr.
Muhammad Ayaz
COMPETITIVE ADVANTAGE
VALUE CHAIN AND
COMPETITIVE ADVANTAGE
VALUE CHAIN AND
COMPETITIVE ADVANTAGE
A firm’s core competencies are deployed through its activities.
Therefore, a firm’s activities are one of the vital internal drivers of
performance differences across firms.
Activities are distinct actions that enable firms to add incremental value at
each step in the value chain by transforming inputs into goods and services
Value chain analysis HELP understand which of the firm’s activities in
transforming inputs into outputs generate differentiation and which drive
costs
VALUE CHAIN ANALYSIS
A firm’s value chain describes its internal activities when transforming inputs
into outputs.
Each action the firm performs along the horizontal chain adds incremental
value as raw materials and other inputs are transformed into components
that are assembled into finished products or services for the end consumer.
Each activity the firm performs along the horizontal value chain also adds
incremental costs
A careful analysis of the value chain allows strategic leaders to obtain a more
detailed and fine-grained understanding of how the firm’s economic value
creation (V − C) breaks down into distinct activities that help determine the
perceived value (V) and the costs (C) to create
Activities are narrower than functional areas such as marketing because each
GENREIC VALUE CHAIN
GENREIC VALUE CHAIN
VALUE CHAIN ANALYSIS
The value chain is divided into primary and support activities.
Primary activities are those that go directly into the creation of a product or the execution
of a service, including:
•Inbound logistics: Activities related to receiving, warehousing, and inventory management
of source materials and components
•Operations: Activities related to turning raw materials and components into a finished
product
•Outbound logistics: Activities related to distribution, including packaging, sorting, and
shipping
•Marketing and sales: Activities related to the marketing and sale of a product or service,
including promotion, advertising, and pricing strategy
•After-sales services: Activities that take place after a sale has been finalized, including
installation, training, quality assurance, repair, and customer service
VALUE CHAIN ANALYSIS
Secondary activities help primary activities become more efficient—
effectively creating a competitive advantage—and are broken down into:
•Procurement: Activities related to the sourcing of raw materials, components,
equipment, and services
•Technological development: Activities related to research and development,
including product design, market research, and process development
•Human resources management: Activities related to the recruitment, hiring,
training, development, retention, and compensation of employees
•Infrastructure: Activities related to the company’s overhead and
management, including financing and planning
VALUE CHAIN ANALYSIS
A generic firm value chain needs to be modified to capture the activities of
a specific business
To help a firm achieve a competitive advantage, each distinct activity
performed needs to either add incremental value to the product or service
offering or lower its relative cost
Discrete and specific firm activities are therefore the basic units of
developing a competitive advantage.
They are the drivers of the firm’s relative costs and the level of
differentiation that the firm can provide to its customers
the value chain perspective enables strategic leaders to see how
competitive advantage flows from the firm’s distinct set of activities
EXAMPLE: INDIGO’S
COMPETITORS FLY IN
EXAMPLE: INDIGO’S
COMPETITORS FLY IN
